[1] Legislative intent of Article 66 of the Civil Act on the contractor’s right to demand mortgage, and in a case where the ownership belongs to the contractor upon completion of a contractor’s endeavor and withdrawal from a contract for new construction of a building, whether the subcontractor, who received a contract from the contractor, has the right to demand mortgage under Article 666 of the Civil Act on the contractor (affirmative)

[2] Extinctive prescription period of the right to claim creation of mortgage under Article 666 of the Civil Code (=three years)

[3] In the construction of a new building, the starting point of counting extinctive prescription of the right to claim mortgage under Article 666 of the Civil Code against the subcontractor

[1] In the case of a contract for construction work on a real estate, ownership of the object completed with the contractor’s effort and the withdrawal is, in principle, attributed to the contractor, but the contractor shall acquire it at the original time by a special agreement between the contractor and the contractor, and in other special circumstances, Article 666 of the Civil Code provides that the contractor may be paid the construction cost preferentially from the object by granting the contractor a right to demand mortgage on the object. In such a case, in the contract for construction work on a new building, where the contractor’s own effort and withdrawal belongs to the contractor and the ownership is attributed to the contractor, the subcontractor who has received a contract for construction work from the contractor shall also have the right to demand mortgage on the contractor under Article 66 of the Civil Code.

[2] Under Article 163 subparag. 3 of the Civil Act, a claim for the construction cost of a contracted construction is subject to a three-year short-term extinctive prescription pursuant to Article 163 subparag. 3 of the Civil Act, and is also the same as a claim incidental to the construction. The claim for the establishment of mortgage pursuant to Article 666 of the Civil Act constitutes a claim seeking the implementation of the procedures for the establishment of mortgage in order

[3] Under Article 666 of the Civil Act against a subcontractor in the construction work of a new building, a contractor may exercise the right from the time when the contractor acquires the ownership of the building, except in extenuating circumstances. However, the ownership of a building is determined according to the terms of the contract concluded between the subcontractor and the contractor without the involvement of the subcontractor. Furthermore, even in cases where the subcontractor was unaware of whether the subcontractor can exercise the right to demand mortgage against the contractor due to the continued legal dispute over ownership after the construction of the building without any negligence, deeming the extinctive prescription run from the time when the right to demand mortgage is established does not accord with the definition and equity as well as with the reasons for the existence of the extinctive prescription system. Therefore, in such cases, the extinctive prescription shall run from the time when the subcontractor becomes objectively aware that the subcontractor can exercise the right to demand mortgage.

[1] Articles 64 and 66 of the Civil Act / [2] Articles 163 subparag. 3, 664, and 666 of the Civil Act / [3] Articles 166, 664, and 666 of the Civil Act

[1] Supreme Court Decision 2007Da78616, 78623 decided Mar. 27, 2008 (Gong2008Sang, 612) / [2] Supreme Court Decision 2008Da41451 decided Nov. 12, 2009 / [3] Supreme Court Decision 92Da39822 decided Jul. 13, 1993 (Gong1993Ha, 2240), Supreme Court Decision 99Da6427, 7371 decided Feb. 11, 2003 (Gong2003Sang, 7655)

Won Construction Co., Ltd. (Law Firm New Village, Attorney Song-chul et al., Counsel for the plaintiff-appellant)

Hysung Co., Ltd. (Law Firm Shin & Kim, Attorneys Hun-tae et al., Counsel for the plaintiff-appellant)

Seoul High Court Decision 2013Na2023424 decided May 1, 2014

The appeal is dismissed. The costs of appeal are assessed against the defendant.

The grounds of appeal are examined.

1. In the case of a contract for construction work on a real estate, ownership of the object completed with the contractor’s effort and the withdrawal is, in principle, attributed to the contractor, but the contractor may acquire it at the original time by a special agreement between the contractor and the contractor. In such a case, Article 666 of the Civil Act provides that the contractor may be paid the construction cost preferentially from the object by granting the contractor a right to claim the creation of mortgage on the object (see Supreme Court Decision 2007Da78616, 78623, Mar. 27, 2008). In light of the foregoing, if the contractor’s efforts and withdrawal from the contract for construction work completed a building and the ownership belongs to the contractor, a part of the construction work on a new building from the contractor shall be deemed to have the subcontractor’s right to claim the creation of mortgage under Article 666 of the Civil Act (hereinafter “right to claim creation of mortgage”).

Meanwhile, pursuant to Article 163 subparag. 3 of the Civil Act, a claim for the construction price of a contracted construction work is subject to a short-term extinctive prescription of three years, and a claim incidental to the construction work is also the same (see Supreme Court Decision 2008Da41451, Nov. 12, 2009, etc.). The claim for the establishment of a mortgage constitutes a claim for the implementation of a mortgage establishment registration procedure to secure a claim for the construction price, which constitutes a claim incidental to the construction work, and thus, the period of extinctive prescription of

In the new construction work of a building, a subcontractor's right to demand mortgage against a contractor shall be established when the contractor acquires the ownership of the building and shall exercise the right from that time except in extenuating circumstances. However, the subject of ownership of a building shall be determined according to the terms of the contract entered into between the subcontractor and the contractor without the subcontractor's involvement. Moreover, even in a case where a subcontractor was unaware of whether a subcontractor can exercise the right to demand mortgage against the contractor due to the continued legal dispute over ownership after the completion of the building without negligence, deeming that the extinctive prescription run from that time when the right to demand mortgage is established does not accord with the definition and equity, and the reason for the existence of the extinctive prescription system cannot be said to be consistent with the same (see, e.g., Supreme Court Decisions 92Da39822, Jul. 13, 1993; 9Da6427, Feb. 11, 2003; 99Da64371, Feb. 7, 2003).

2. The reasoning of the lower judgment and the record reveal the following facts.

(1) On August 2, 2002, the first equity owner of the instant site (hereinafter “the first equity owner”) contracted the instant construction of the instant building to an accelerator comprehensive construction company (hereinafter “cell comprehensive construction”) on or around September 2, 2002 after obtaining a construction permit under his own name. On or around October 14, 2002, the Plaintiff was under a subcontract for construction of the instant building from cell comprehensive construction, and the Plaintiff ceased to perform the construction of the instant building due to the nonperformance of cell comprehensive construction around March 20, 203.

(2) The co-ownership relationship of the instant site was changed due to the share sale, and the Defendant was awarded a contract for the construction of the instant building from the share owners at the time of April 2003 to the Plaintiff for the construction cost of KRW 1,517,945,00.

(3) Around July 28, 2003, the Plaintiff completed the structural construction of the instant building. Around June 1, 2004, the Plaintiff increased the construction price to KRW 1,602,117,200 with the Defendant, but did not receive the construction price from the Defendant, and the Defendant did not properly proceed with the subsequent process.

(4) Around September 16, 2004, the Defendant paid all the costs incurred by the owner of the instant land as of December 20, 2004 to the owner of the instant land, and agreed to purchase the instant site, but if the owner fails to perform this, he/she would waive all the rights to new construction of the instant building and make a contract to a third party for construction, and would not raise an objection thereto. The Defendant failed to perform his/her obligation to purchase, etc. the said site until December 20, 2004.

(5) Accordingly, as of January 10, 2005, the share owners of the instant building site contracted the instant new construction work to the Changwon Construction Co., Ltd. (hereinafter referred to as the “FF”).

(6) Until August 2005, the Plaintiff filed an application for provisional attachment against the first owner of the instant building on the basis of the above aggregate construction cost claim against the owner of the instant building, and received a provisional attachment order as Seoul Central District Court 2005Kadan4352 on August 29, 2005. As to the instant building that had not yet been completed upon the above provisional attachment registration entrustment, the registration of ownership preservation in the name of the first owner was completed as of August 30, 2005 by the Seoul Central District Court No. 79305 on August 30, 2005.

(7) Thereafter, around December 1, 2006, 14 persons, including the Nonparty, etc., who were the owners of the instant land as of December 1, 2006, asserted that they had acquired the ownership of the instant building by original acquisition. The first owners of the instant building filed a claim for the registration of cancellation of ownership preservation on the instant building, and filed a lawsuit against the Plaintiff seeking the declaration of consent on the registration of cancellation (hereinafter “related cases”).

(8) The first instance court of the relevant case (Seoul Central District Court 2006Gahap103510) decided on July 28, 2003, the date when the Defendant entered into a contract for the construction of the building of this case, that the ownership of the building of this case, which had the form and structure of the building independent from social norms, belongs to the owner of the ownership of the building of this case at the time of the completion of the construction of the building of this case, and rendered a judgment of partial acceptance on November 15, 2007, and some parties appealed thereto.

(9) On March 4, 2009, the appellate court (Seoul High Court 2008Na17801) continued on March 4, 2009, the Plaintiff filed an independent party intervention lawsuit seeking the cancellation of registration of preservation of ownership and ownership confirmation on part of the initial share holders in subrogation of the Defendant (Seoul High Court 2009Na22282).

(10) The appellate court in the instant case is insufficient to view that the building of this case had an independent form and structure was made by the Defendant’s effort and exit, and that the Defendant agreed to vest the ownership of the building of this case in the ownership of the instant site at the time when the construction contract was entered into. Therefore, it was determined that the Defendant had acquired the ownership of the instant building on or around July 28, 2003, and that the ownership of the instant building was originally acquired on or around July 28, 2009. On June 25, 2009, the appellate court affirmed the Plaintiff’s claim for cancellation of the registration of ownership preservation, dismissed the remainder of the claim, and dismissed the portion of the principal claim that cannot be compatible. The judgment was finalized by the final appeal on August 25, 201 (Supreme Court Decision 2009Da67443, 2009Da67450).

(11) Meanwhile, the construction of the said building was completed around June 2007, when the first instance court was in the process of the said related case.

(12) On March 26, 2013, the Plaintiff filed the instant lawsuit seeking the implementation of the registration procedure for establishing a mortgage on the instant building as an exercise of the right to demand mortgage against the Defendant.

3. We examine the above facts in light of the legal principles as seen earlier.

(1) Around April 2003, the Defendant awarded a contract for the construction of the instant building from the initial owner of shares, and subcontracted the structural construction to the Plaintiff, and acquired the ownership of the instant building, which had the type and structure of the building independent from social norms, even though it was not completed around July 28, 2003, the date of completion of the Plaintiff’s structural construction, and thus, the Plaintiff’s right to demand mortgage against the Defendant was established around July 28, 2003.

(2) However, according to the above facts, the following circumstances can be revealed. ① The right to demand mortgage of the Plaintiff, a subcontractor arising from the original acquisition of the ownership of the instant building by the Defendant, who is the contractor, can be exercised against the Defendant, the contractor, depending on whether there is a special agreement between the owner of the instant land and the Defendant regarding the ownership of the instant building under the contract for new construction of the instant building. The Plaintiff was in the position of a third party whose details are unknown. ② After December 20, 2004 under the agreement entered into with the owner of the instant land, the Defendant did not waive the right to new construction of the instant building and did not exercise any right to the instant building without exercising the right to the instant construction after December 20, 204, and the lower court determined that the ownership owner of the instant building was not involved in the process of completing the building by contracting the remaining construction to the original owner of the building, and ③ as the Plaintiff’s provisional attachment application was accepted, the first owner of the instant building and the first owner of the instant building could have been objectively changed from August 30, 20, respectively.

(3) In full view of these circumstances, it is reasonable to view that the Plaintiff was in a situation in which it was objectively difficult to ascertain whether it is able to exercise the right to demand mortgage against the Defendant prior to the date the judgment of final appeal in the instant related case is rendered, and that the Plaintiff was unaware of it without negligence. Nevertheless, deeming that the extinctive prescription run three years after the establishment of the Plaintiff’s right to demand mortgage does not accord with justice and equity, and thus, it is reasonable to view that the Plaintiff, a subcontractor, is able to exercise the right to demand mortgage from August 25, 201, which was objectively confirmed by the judgment of final appeal in the instant related case, and that the extinctive prescription runs from August 25, 2011, which was objectively confirmed. Furthermore, insofar as the instant lawsuit was instituted on March 26, 2013, which was

In the same purport, the lower court is justifiable to have rejected the Defendant’s defense of extinctive prescription against the Plaintiff’s right to demand mortgage. In so doing, contrary to what is alleged in the grounds of appeal, the lower court did not err by exceeding the bounds of the free evaluation

4. Conclusion

Therefore, the appeal is dismissed, and the costs of appeal are assessed against the losing party. It is so decided as per Disposition by the assent of all participating Justices.

Justices Kwon Soon-il (Presiding Justice)